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Altered austerity package gets first green light

A number of tweaks to the final package of some 13.5 billion euros in spending cuts and tax hikes were enough to obtain the initial approval of coalition leaders yesterday but the government still faces a challenge to convince the troika in the coming days, especially after changing the balance of the measures.

The government decreased by 1 billion to 10.5 the savings that will come from reductions in public expenditure, while raising from 2 to 3 billion the revenues that will be derived from tax increases over the next two years or four if Greece?s lenders agree to an extension to the adjustment period.

Prime Minister Antonis Samaras, Democratic Left?s Fotis Kouvelis and PASOK?s Evangelos Venizelos discussed the package yesterday and gave it the green light, although Venizelos and Kouvelis expressed some reservations.

Democratic Left wants the troika to accept a clause that will allow Greece to ease up on spending cuts if it beats its targets. The troika, however, has indicated that if Greece were ahead of its targets, any extra savings would simply go towards building a bigger primary deficit.

On exiting the meeting, Finance Minister Yannis Stournaras said Greece would try to include such a clause in the latest agreement, to balance the troika?s demands that more measures be taken if targets are not met. Troika officials are due back in Athens on Sunday to resume talks.

Of the 10.5 billion euros in spending cuts, 6.5 billion is coming from cuts to wages, pensions and benefits. The rest is due from savings produced by structural reforms. Up to 8 billion euros of measures are due to be implemented next year.

As a result of the cuts to pensions, retirees will lose roughly a month?s worth of payments. Any pensions between 1,000 and 1,500 euros will be cut by 2 percent. Those between 1,500 and 2,000 will be reduced by 5 percent and any above 2,000 are to be slashed by 10 percent. Beyond that, pensioners will have all their extra holiday payments abolished. These had already been reduced to a total of 800 euros per year. Retirees with supplementary pensions will be even worse off as two monthly payments are to be cut.

The increase in the retirement age from 65 to 67 is due to be implemented from next year.

Civil servants face cuts of up to 10 percent to their salaries, while those working at public enterprises will see reductions of between 20 and 30 percent. Policemen and soldiers will also have their wages reduced, despite the prime minister?s initial wish to prevent the reduction. The cuts will be from 6 percent to 23 percent.

Holiday payments for civil servants, which add up to 1,000 euros gross, will be abolished, meaning that bureaucrats will earn 12 monthly salaries, rather than the 14 they were originally paid.

In terms of tax revenues, the government is aiming to raise about 1.5 billion euros from tougher measures for the self-employed. They will lose their tax-free threshold of 5,000 euros, although it will remain in place for salaried professionals. The self-employed will be taxed on the whole of their income at a rate of 30 or 35 percent. Some 300,000 farmers who are currently not obliged to keep records of what they sell will have to do so and will be taxed at a similar rate to other self-employed Greeks.